Hi all,
I was hoping people could offer me some insight about the best use for a new raise I got at work. I will provide a little background. Before I started paying my loans I had built up a comfortable balance in an emergency account. I currently have around 60k in student loan debt. I started at 75k but in the past year I have been able to put 15k towards student loans. I have been putting enough into my 401k to receive my company match and dumping everything else into my loans. Starting with the highest interest rate and working my way down. It would seem logical to take my raise (roughly 3k a year) and apply it towards student loans as well. This brings me to my question.
With my current tax burden I will give up 1/3 of my raise to uncle sam. This will leave me with about 2k to spend towards loans. My alternative is to take all 3k of my raise and put it into my 401k. While the 401k will not likely outperform my loan rates, it is not exactly a fair comparison. I can put 2k towards a 5% loan, or I can put 3k towards a 5% return in the market. If you include the fact that I do not have to pay taxes on the balance entered into my 401k, the rate of return on my 401k is 55% compared to the 5% saved on loans. Until my 401k is maxed out it would seem that by avoiding taxes I can improve my return rate.
I am curious as to other people's thoughts on this matter. I have a strong desire to shed my debt as fast as possible but also want to make sound, long term financial decisions. (Unlike the kind I made when I chose such an expensive school!) In my position which option would you suggest?